Stock Picks: Citi, Goldman, Palm, Yahoo

Citigroup Inc.: Standard & Poor's equity analyst Matthew Albrecht kept a buy recommendation and $6 price target on shares of Citigroup Inc. (C) on Apr. 19.

Citigroup said on Apr. 19 that its first-quarter profit more than doubled as the global economic rebound trimmed costs for bad loans, trading revenue surpassed analysts’ estimates and the value of subprime mortgage bonds increased.

First-quarter net income of $4.43 billion followed a loss of $7.58 billion in the fourth quarter and a profit of $1.59 billion in the first three months of 2009, New York-based Citigroup said in a statement. Adjusted per-share earnings were 14 cents. Analysts in a Bloomberg survey estimated the company would break even.

In a posting on the S&P MarketScope service, Albrecht said Citigroup's earnings per share (EPS) of 15 cents, vs. a year-earlier loss per share of 18 cents, were well above his estimate of a one-cent loss per share. Albrecht noted that Citigroup's revenues were aided by an improved net interest margin, securities write-ups and trading gains, while costs and the effective tax rate were below his estimate.

"Delinquencies have stabilized or improved across most categories, suggesting further reductions in loss provisioning," the analyst wrote.

Albrecht raised EPS estimates for 2010 to 49 cents from breakeven results, and for 2011 to 50 cents from 17 cents.

Goldman Sachs Group Inc.: FBR Capital removed shares of Goldman Sachs Group Inc. (GS) from its Top Picks list on Apr. 19, and reiterated its outperform rating and $190 price target.

Goldman Sachs sank 13% on April 16, its biggest plunge in more than a year, after the SEC sued the bank and one of its vice presidents. The regulator said the bank created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against them. Goldman Sachs said the claims are “completely unfounded.” Paulson wasn’t accused of wrongdoing.

In a note, FBR equity analyst Steve Stelmach said Goldman was removed from the Top Picks list due to the negative overhang created by the SEC actions announced on Apr. 16. The stock's rating remains at outperform due to its continued strong fundamentals, Stelmach said, though he recognizes that the regulatory environment does "pose an overhang" on the shares.

Stelmach said that while Goldman has indicated it plans to defend itself against the SEC's accusations, the shares will likely feel near-term pressure from the risk of more negative headlines and the implications of the SEC’s actions on direction of the financial regulatory reform in coming weeks.

Palm Inc.: Morgan Keegan equity analyst Tavis McCourt downgraded a rating on shares of Palm Inc. (PALM) to underperform from market perform on Apr. 19.

In a note, McCourt said that the downgrade came after the maker of the Treo filed a Form 8-K with the SEC on Apr. 16 saying that Michael Abbott, its senior vice-resident of software and services, has resigned effective Apr. 23. McCourt noted that Palm also said that five other executives, including chief financial officer Doug Jeffries, received a total of nearly 1.2 million restricted shares; and that two officers, including Jeffries, got $250,000 retention bonuses.

"[T]hese are not actions that inspire confidence about PALM's ability or willingness to sell out at a premium valuation" in the near term, McCourt said.

Yahoo! Inc.: Kaufman Bros. equity analyst Aaron Kessler kept a buy rating and $20 target price on shares of Yahoo Inc. (YHOO), owner of the second-most-used U.S. Internet search engine, on Apr. 19.

Kessler said in a note that after the close of trading Apr. 20, he expects Yahoo to report revenues toward the midpoint of the company's earlier guidance of $1.575 billion to $1.675 billion, and earnings before interest, taxes, depreciation and amortization (EBITDA) toward the high end of its guidance of $355 million to $375 million. His estimates call for $1.672 billion in gross revenues, $1.183 million in net revenues, $393 million in EBITDA, GAAP EPS of 10 cents, and pro forma EPS of 14 cents. He noted that the Wall Street consensus estimates are for $1.167 billion in net revenues and 9 cents GAAP EPS.

"We expect a neutral reaction for Yahoo shares given our expectation for improved display growth but continued share losses in search," Kessler wrote. He said that on the company's conference call with analysts, he would focus on "the timing of the search transition, Yahoo's ability to stabilize search market share, schedule of the rollout of its global technology platform, as well as any new initiatives".

Before it's here, it's on the Bloomberg Terminal.